The interview with Sabine Mauderer was conducted by Inken Schönauer and Christian Siedenbiedel.

Translation: Deutsche Bundesbank
 

Ms Mauderer, as of September of this year you are no longer just a member of the Executive Board, but Vice-President of the Deutsche Bundesbank. Has anything changed?

In purely practical terms, I now represent the Bundesbank President, attend the ECB Governing Council’s interest rate meetings and contribute to international cooperation at meetings of the G7 and the G20, for instance. I consider this office to be an honour and a great responsibility at the same time.

Do you see things differently in your new role?

Absolutely. The meetings of the G7 and the G20 are very helpful. In times of immense geopolitical challenges, they provide me with deeper insights, which are key to doing our job here.

As the Bundesbank Executive Board member responsible for the area of Markets, what impact would you say the geopolitical situation is currently having on the financial markets?

The financial markets are a “sentiment barometer”. Positive and negative news alike moves the markets. They usually calm down again very quickly once a piece of news has been processed, though. Take the US presidential election, for instance. In the run-up, the significant uncertainty caused a lot of movement in the financial markets. There were concerns that it would take a long time for the election results to come through. When that didn’t turn out to be the case, the markets calmed down. Now, though, they’re starting to analyse every tweet the new US President makes.

What is the markets’ take on the expected US policy line?

In the short term, it could help the United States achieve even more growth. The markets judge this very positively. But then again, we know that everything comes at a price. US government debt could rise significantly, as could the risk of inflation and trade disputes. Such risks are likely to play an ever greater role in the markets over time.

Should we be prepared for turbulence or, at the very least, increased volatility in the financial markets?

Increased volatility, certainly. Even prior to the US election, we were seeing increased movements in the market. We’ll see this time and time again in a globally interconnected world.

From an internal Bundesbank perspective, how do you deal with Donald Trump announcing measures that may not even be implemented in the way he says they will?

Of course, we’re analysing the new state of affairs in America. Conditions there could influence growth, debt and inflation not only in the United States, but could also have a global impact.

Donald Trump recently announced tariffs for Canada, which seems somewhat bizarre.

It’s not our job to comment on that. We at the Bundesbank will begin by examining the position of Germany and the euro area, and will consider various scenarios. In my experience, Germany is not viewed as critically by other countries as is sometimes posited here. Many are envious of our triple A credit rating, in particular. We have a very sound fiscal policy. The expectation on the markets is that we will remain on a sound fiscal footing after the election – even if the debt brake has to be adjusted slightly. However, the fact that our growth is so weak has been viewed critically by the markets. In actual fact, this anaemic growth is not only cyclical, but also has deeper underlying causes. That’s why it is so important that structural reforms are put in place.

Which scenario seems more likely to you at present: that Trump’s new policy line will weigh on growth in Germany, or that it will trigger German inflation?

The actual consequences heavily depend on the concrete measures taken, which we can’t currently predict. If there are indeed strong, broad-based tariff hikes, this will presumably dampen economic output and increase inflation in the euro area and Germany. But the way Europe positions itself will also play an important role.

The morning after it became clear that Trump would be re-elected as the President of the United States, and then later on when Germany’s “traffic light” coalition government collapsed, the DAX went up by one percent. What’s your experience of days like those?

We can keep track of price movements at high frequency, any time, anywhere, whether we’re working in the office or on the go, using a smartphone. The collapse of the coalition government did not exacerbate market disquiet, so that was a good sign.

It may be the case that the election process for a new German government comes to an impasse. Would this cause major problems in the markets?

Germany’s sound fiscal position is having a reassuring effect in all quarters.

Contrast this with France’s situation, where government bonds were in turmoil in the wake of the election.

Our situation is different from that of France, it’s true. However, it is important that we get on the growth path. Europe is under pressure. The impact that Europe has on the global stage depends heavily on its economic strength. That’s why it is important that the new government takes office soon, so that we can continue adjusting the parameters to create more growth.

In your view, what is the most important factor in terms of achieving more growth?

The challenges we face are many and varied. In order for the right priorities to be set, there must be intensive communication between enterprises and the public sector. Both sides need to listen to each other and understand where the pain points are.

By international standards, has Frankfurt as a financial hub fallen somewhat by the wayside?

The German financial centre has potential . . .

. . Sounds like a C+ school report ...

Germany as a financial hub should not be underestimated: it has a triple A credit rating, plays host to a great number of domestic and foreign banks, has a highly profitable stock exchange in the Deutsche Börse, and many influential European supervisory authorities are based here. Germany was in the lead after Brexit, but France has more than caught up since then: partly by introducing tax relief measures, but mostly by attracting businesses. Paris and London, too, have very sophisticated financial centre strategies and extremely effective cross-sectoral lobbying associations. Germany can still learn a lot from them.

But didn’t London ultimately lose its role as Europe’s main financial hub as a result of Brexit?

London has already forfeited a considerable amount of its international importance. Brexit didn’t exactly help matters. What we are seeing in the case of London is that enterprises are delisting – removing their shares from the stock market, in other words, or making initial public offerings in the United States instead.

If Trump decides to deregulate the American banks – and some things do point towards that – will demands for deregulation be made in Germany, too, so that banks operate under the same conditions internationally?

In my more than twenty years of observing financial hubs, my experience has been that banks always want less regulation. However, European institutions are also highly aware that their capital strength makes them resilient, and that nobody in Germany will benefit from a financial system actor breaking away and rendering the system fragile.

You have referred to the capital markets and banking union in Europe as “urgent”. Aren’t you tired of hearing this over and over again?

This is indeed a project that has been going on for a long time. We really need to wrap it up. Europe and Germany are feeling the pressure. This could help get the ball rolling. At heart, it is about strengthening Europe to make it an economic and political force on the world stage. This includes the banking and capital markets union, because it is ultimately conducive to growth.

That is a demand around which everyone can rally. However, as soon as European banking consolidation becomes concrete, as in the case of a possible takeover of Commerzbank by the Italian bank Unicredit, the Germans then say we’d rather not.

But the euro is a prime example of willingness to change. Germany entered the euro with a strong Deutsche Mark. As an export nation, we ultimately benefited greatly from this. We have given a lot, but we have received even more.

In Germany, a controversial element of the banking union is the question of a common deposit guarantee scheme for savers. Would you argue that Germany should also be in a common deposit guarantee scheme with other countries such as Italy?

The banking union has been completed in part, and that alone has created a great deal of resilience in the banking system in Europe. The question now really is what about the common European deposit guarantee scheme? I think that Germany, as an export nation, benefits greatly from being able to rely on strong neighbours with stable banks. There are different models of how such a deposit guarantee scheme could be constructed at the European level. A conceivable compromise would be a hybrid solution which retains national deposit protection schemes but complements them with a European system. An agreement should be reached, as it is about risk sharing. At the end of the day, everyone must contribute to a stable Europe – Germany and other Member States.

The ECB has taken a clear stand that it would be good to have more European champions among banks. Does the Bundesbank see things this way as well?

We need them both: internationally competitive banks and banks that know precisely what their home countries need and which partner with the business sector, including during crises. Ideally, we can have the best of both worlds.

But is it even true that foreign banks prove less reliable in crises?

It is important for both domestic and foreign financial institutions to have a local presence. When the pandemic broke out in 2020, the money and capital markets were teetering on the brink of collapse. In such situations, there is a greater tendency to stand by the customers in one’s domestic market, simply because you can assess your own country and your own customers very clearly and have built up trust. At the same time, many parties welcome foreign banks’ services on offer and view them as as reliable partners.

But now other banks that have been here for a very long time would turn around and say, we’re so rooted here and know our customers inside and out.

We have around 100 foreign banks here in Frankfurt, some of which have been here for generations. More would be an asset. It would be good for business. Ultimately, what counts is that we have enough financial institutions to finance the necessary structural reforms or the transformation of the economy. This is where the capital markets union comes back into play again.

Why does the “person on the street” need the capital markets union?

A case in point is old-age provision. Never before have so many people wanted to use capital market products to save up for old age. Completion of the capital markets union would provide all interested parties a wider range of investment products from across Europe at uniform terms and conditions. You can then access much more without having to worry about legal terms and conditions in Spain and France being different from those in Germany, say. The investor base would also increase for European enterprises wishing to raise funds in the capital market. At some point, we could even see more IPOs in Europe again. We would also achieve greater independence from the US capital market. It is therefore about investment by Europeans for Europeans.

With the collapse of the governing coalition in Berlin, it’s now back to the drawing board regarding the issue of funded pension provision plans, right?

The issue of retirement provision will occupy future governments as well. Not only the next government, but undoubtedly the one after that, too. Overall, pension provision needs to be put on a broader base. Some of our neighbouring countries have made it work well. If we look at how the Swedes are dealing with statutory retirement provision, we see that part of it is being invested very successfully in the capital market. The Netherlands has an excellent model for the second pillar, occupational retirement provision. It allows people to retire relatively early with a decent pension. And if we look at the third pillar of private pension provision, we can learn from the United Kingdom or Japan: they have stocks-based investment funds for pensions which are given preferential tax treatment. That is going very well.

The topic of sustainability gave a certain boost to young people’s interest in the capital markets. Is the importance of sustainable investment among investors, banks but also you fading into the background?

That’s not how I see it. A few years ago, many people began to purchase green investment products as a way to do good and at the same time build up wealth. At the same time, the financial industry discovered that this was an interesting new business area. Some retail investors have then noticed that their investment product was not as sustainable as they had thought. And in the financial industry, there was a growing fear of being accused of “greenwashing”. Both sides have therefore become a little more cautious. This can mean that everything will take longer.

But would you not say that, given the number of crises going on around the globe, sustainability has slipped down on the list of priorities?

No, because we will see tragedies such as the Valencia flood disaster occur more and more frequently. But also, due to the geopolitical situation, there are now many other concurrent issues.

What more can central banks do for the green transformation? If bonds are no longer purchased, green criteria can no longer be used for choosing what bonds to buy.

At the Bundesbank, we interpret our monetary policy mandate as being very lean; our objective is price stability. But climate-related risks can have a significant impact on economic development, financial stability and price stability. In countries with extreme weather events such as storms, droughts or floods, for example, food prices, and in some cases energy prices, rise considerably. This is happening more and more often. We as central banks cannot ignore this.

But, in the absence of bond purchases, what instruments does the Bundesbank even have to do anything about it?

First of all, it is clear that bond purchases were made for monetary policy purposes, not for climate action purposes. You are asking about our responsibility for climate-related risks. Central banks can address the enormous financial risks associated with climate change. Our latest analysis has shown that, if global climate policy does not change, global gross domestic product could be reduced by 15 % by 2050. This does not even take into account rising sea levels and the fallout from climate migration. Though I would not call central banks admonishers, I do believe it is our obligation to tell governments, but also the corporate sector, in no uncertain terms that this is the world that awaits you. This comes with our job. Governments and firms then have to decide what countermeasures to take.

© All rights reserved. Frankfurter Allgemeine Zeitung GmbH, Frankfurt. Provided courtesy of the Frankfurter Allgemeine archive.